UK now main rival to Swiss private banks

Britain’s emergence as the strongest European rival to Switzerland for private banking and wealth management has been highlighted by figures showing that UK assets under management rose 11.4 per cent to £524.4bn last year.

The sector, which provides investment services and advice to the wealthiest people, employs close to 23,000 staff in the UK, contributed £3.2bn to the economy and paid £1.2bn in taxes, according to a debut report from the British Bankers’ Association.

In total, the sector generated £1.15bn of profit last year, an increase of more than a fifth on the previous year. Investment managers made the highest profit margins of 29.4 per cent, while full service wealth managers were with 23.8 per cent and private banks had margins of 21.2 per cent.

The sector is consolidating, as companies merge to increase their market share and benefit from economies of scale which led the number of wealth management firms to decline from 126 to 119 last year.

The biggest UK private banks and wealth managers are Coutts, Barclays Wealth and UBS.Two-thirds of people in the sector are employed in London. A top executive at a large Swiss private bank said: “London is a significant place for wealth management – a lot of funds are relocating here. London is becoming the main European alternative marketplace to Switzerland,gaining ground from Luxembourg.”

In a boost for the sector, the Bank of England this week adapted its rules to limit the riskiness of bank lending in a way that is likely to make it easier for private banks to still provide mortgages to wealthy buyers of luxury homes.

The BoE’s Financial Policy Committee in June recommended a 15 per cent limit on the total number of mortgages that a bank can lend at more than 4.5 times a borrower’s income.

Yet many private banks’ clients could be caught by the rules because they do not have a steady income and instead repay their mortgages from savings, investments, rental income or one-off windfalls such as asset sales.

This week the BoE added a clause to exclude lenders that write fewer than 300 mortgages a year from the rules,which is likely to exempt many private banks. It is also allowing private banks that are owned by larger groups,such as Coutts at RBS and Barclays Wealth, to have their mortgage books judged at group level.